The pros and cons of dual-key investment properties
Previously, I looked at the positives and negatives of duplex housing from an investor perspective.
Today I'll explore a more recently evolved ‘sister’ property type to the humble duplex – the ‘dual-key’ property.
Dual-key properties are a fairly recent emergence; however they have existed for decades in places such as Sweden, Japan and the United States.
A dual-key property is effectively one main property, with one front entrance door/hallway. The property then has a living room, bathroom, kitchen and one or two bedrooms.
Sounds like any normal property so far; except that a dual key property has an additional dwelling inside of it. Usually there’s an extra bedroom that has its own door lock. Inside the bedroom is a studio apartment with its own small kitchen and separate bathroom.
Unlike duplexes, dual-key properties enable one space to be shared by two separate parties or tenants. The property may have only one entrance/front hallway, through which all occupants enter. Some dual-key properties have only this as a common area, however most typically have a shared lounge and kitchen. Usually each tenant will actually have separate keys that unlocks only their own bedroom and bathroom spaces.
The pros and of a dual-key investment:
- Two income producing properties on one title (unlike some duplexes, townhouses and attached dwellings that may require separate titles).
- As the property unit owner will typically only need to pay strata for one property, not two.
- Each portion can still be let separately, offering investors great scope for maximum rental return.
- Arguably, in an ageing population that is also downsizing and urbanising, dual-key could be a smart play to reach into the urban dwellers who require extra space for a parent or elderly relative to live close-by (but still with some privacy and separation).
- Another target rental audience for these property types would be students. Most urban students desire to live within walking distance to everything; their campus, CBD centres, and transport hubs. Dual-key properties may be attractive to students who seek a well located, low maintenance/low common area cleaning property.
The cons and of a dual-key investment:
- Because dual-key is a (relatively) new property type in the Australian market, many are being priced as such. It may be financially smarter, in terms of rental return, to simply buy two separate properties from the beginning.
- The jury is still out on whether this property type is high demand or not. The abovementioned student and extended-family demographics may appreciate this property type, but many others will not. Urban young professionals, for instance, may simply prefer to pitch in for a three or four bedroom share house instead.
- Banks and lenders may have reservations in approving mortgages for this property type.
- Dual-key properties may actually offer limited capital growth. However, some dual-key properties may be easily convertible back to a two to three bedroom single property later down the track.
It is a great sign of the times that dual-key properties are on the uptake. With limited urban space and continually high-demand to occupy it, this property type could be a good compromise between human density and quality of life.
As a prospective investment property however, like all property types, would-be investors need to crunch rental and capital growth numbers and consider all the issues a dual-key property type presents, before taking the plunge.
